Stakes high for small businesses in health care debate

As members of Congress head home for their August break, the debate over the impact of health care reform on small businesses is heating up.

The Obama administration is touting a new Council of Economic Advisors' report that concludes reform would help small employers buy better coverage for less money. But many small business owners say they don't think the reforms on the table now will help.

Twenty-three years ago, Dan Cruikshank and his buddy Jeff Knight came back from a paddling trip through Ontario's Quetico Provincial Park with dirty laundry and an idea. At home in Minneapolis, they started a company, Granite Gear, to make the kind of outdoor gear they'd like to have themselves.

Now, they employ about 30 people in Two Harbors, Minn. They make packs, tarps and other outdoor gear -- and not just stuff that they like. Granite Gear recently won a contract to provide high-end tactical backpacks to American military Special Forces personnel.

"Our chief patrol pack, the one that won the contract, uses solution-dyed nylon fabrics and webbings that are infrared reflective, for example, so it doesn't appear on night vision goggles," Cruikshank said.

But Granite Gear offers something a lot more important than outdoor gear for Cruikshank; it's how he and his family get health insurance. It costs about $25,000 a year for his family alone, and he pays most of that.

His company pays about half the cost of insurance for most of its employees. Cruikshank would like to offer more coverage to his staff, but he fears it would cost so much it would cripple his business.

There are several proposals to deal with that on the table in Washington.

One is what's called a "pay-or-play" mandate. It would require businesses of a certain size to either offer paid health insurance or pay a penalty, perhaps as much as 8 percent of their payroll. That looms large for businesses such as cleaners or gas stations, which traditionally haven't offered health benefits.

The mandate is a non-starter for Republicans in Congress, including Rep. Erik Paulsen of Minnesota's 3rd District.

"The biggest concern I hear from small businesses is that if you give them a mandate to provide coverage, at a low level of employees or payroll, they're not going to hire more people," Paulsen said. "Right now we need to do all we can to get the economy going again, to get job creation going, so we can help small businesses to provide insurance for their employees and encourage them to hire more people."

There are two other ideas floating around as well. One would offer a tax credit to employers to help them pay for insurance. The other would subsidize employees directly, to let them buy their insurance outside the workplace, on so-called insurance exchanges.

The U's Roger Feldman said that would insure more people. But he said it's unlikely that such incentives would make up for the cost of coverage. Businesses could find it's cheaper to drop coverage and pay a penalty.

"Even with the credit, some small firms may be worse off," Feldman said. "That's going to lead to layoffs and some small firms going out of business."

The focus on covering the uninsured doesn't do much to make insurance more affordable for the businesses that already provide it, which tends to be more the case in Minnesota than in other states.

Sanjay Kuba is president and chief technology officer at GCI Systems in Shoreview, which provides IT consulting to businesses, school districts and other organizations. GCI offers health insurance to its employees.

Kuba is also a board member with the Minnesota Chamber of Commerce. That group is lobbying to make costs more transparent, so that employers can tell what they are buying. He said businesses like his want their health providers to be paid for what they deliver, not just the procedures they perform.

"Frankly, for a business like mine that has 17 employees and a lot of risk, we're going to continue to see cost increases unless we can get significant reform in being able to spread our risk out over a lot bigger pool of people," Kuba said.

Business owners like Granite Gear's Cruikshank say health care benefits ultimately have to serve business, to help sustain creative and productive people, rather than the other way around.

"I started young, with my business partner, and we were 23 years old," Cruikshank said. "Back then, we weren't really worried about health insurance. But if I was to start a new business and I had a wife and kids, it would be almost impossible."